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| 8-K - PRIMARY DOCUMENT - HireQuest, Inc. | a8-kq12020earningsrelease.htm |
HireQuest Reports 18.7% Revenue Increase for the First Quarter of
2020
Company Generates $5.5 Million in Cash from Operations
GOOSE CREEK, South Carolina – May 11, 2020 – HireQuest,
Inc. (Nasdaq: HQI), a national provider of back-office and
operational support for franchised operators of on-demand and
temporary staffing service providers, today reported financial
results for the first quarter ended March 31, 2020.
First Quarter 2020 Financial Summary
●
Franchise royalties
increased 17.4% to $3.7 million compared to $3.2 million in the
prior year period. Of this increase, approximately $783,000 related
to branches acquired in the merger and subsequently converted to
our franchise model.
●
Services revenue,
which includes interest paid on aging accounts receivable,
increased 31.2% to $415,000 compared to $316,000 in the prior year
period.
●
Total revenue
increased 18.7% to $4.1 million compared to $3.5 million in the
prior year period.
●
Reserve of $1.4
million placed on notes receivable issued to finance the sale of
offices acquired in the merger with Command Center as a result of
the negative impact COVID-19 has had on the economy.
●
Income from
continuing operations, inclusive of the non-recurring, pre-tax
reserve of $1.4 million placed on notes receivable, was $875,000,
or $0.06 per diluted share, compared to $1.7 million, or $0.17 per
diluted share, in the year-ago period.
System-wide
sales1 (a non-GAAP operating performance
metric) for the first quarter 2020 increased 18.7% to $56.5 million
compared to $47.6 million for the quarter ended March 31,
2019.
“The
operating profit margin, excluding the impact of the $1.4 million
one-time reserve on notes receivable, remained steady on higher
revenue for the first quarter, despite increasing challenges faced
by our franchisees because of extraordinary pressures in the
current labor market,” commented Rick Hermanns,
HireQuest’s President and Chief Executive Officer. “We
remain optimistic about the long-term prospects for our business as
we believe our franchise model, which significantly reduces risks
by minimizing capital investments and generating ongoing levels of
cash, will further strengthen our balance sheet and allow us to
weather the volatility created by current economic
conditions.”
“Market
and economic challenges exacerbated by the current COVID-19
pandemic, drove our decision to record a $1.4 million reserve
against the outstanding notes in conjunction with the sales of
offices we acquired in the merger,” continued Mr. Hermanns.
“This reserve negatively impacted our net income, although
there was no impact to cash. Cash generation was exceptionally
strong in the first quarter with nearly $5.5 million generated from
operations.”
In the
third quarter of 2019, the company sold substantially all the
offices it acquired in the merger with Command Center. Accordingly,
the assets and liabilities, operating results and cash flows for
these businesses and previously company-owned offices are presented
as discontinued operations, separate from continuing operations,
for all periods presented in the company’s consolidated
financial statements and footnotes. Unless otherwise noted,
discussions herein relate to the Company’s continuing
operations.
First Quarter 2020 Financial Results
Franchise
royalties in the first quarter of 2020 were $3.7 million, up 17.4%
compared to $3.2 million in the year-ago quarter. Of this increase,
$783,000 was related to branches acquired in the merger and
subsequently sold and converted to the company’s franchise
model. Service revenue was $415,000, up 31.2% compared to $316,000
in the prior-year quarter. This increase was largely related to an
increase in interest charged on outstanding accounts
receivable.
The
company’s total revenue is calculated by aggregating its
revenue derived from franchise royalties and service revenue.
Franchise royalties are the royalties earned from franchisees
primarily on the basis of their sales to their customers. Service
revenue consists of interest charged to franchisees on overdue
accounts and other miscellaneous revenue for optional services the
company provides its franchisees.
Total
revenue in the first quarter of 2020 was $4.1 million, an increase
of 18.7%, or $648,000, compared to $3.5 million in the year-ago
quarter. This increase is primarily due to the company’s
merger with Command Center, Inc., which was completed in the third
quarter of 2019.
Selling,
general and administrative (“SG&A”) expenses in the
first quarter of 2020 were $3.3 million compared to $1.6 million
for the first quarter last year. The increase was primarily due to
a $1.4 million reserve placed on notes receivable the Company
issued to finance the sale of offices acquired in the merger with
Command Center. This reserve is directly related to the negative
impact COVID-19 has had on the economy. The increase was also
driven by an increase in stock-based compensation of approximately
$323,000, an increase in legal and professional fees of $282,000
and increased compensation costs of $147,000, which were partially
offset by a decrease in workers’ compensation costs of
$702,000.
Inclusive
of the $1.4 million reserve on notes receivable, income from
operations in the first quarter of 2020 was $835,000, compared to
$1.9 million in the first quarter last year.
Net
Income in the first quarter of 2020 was $875,000, or $0.06 per
diluted share, compared to $1.7 million, or $0.17 per diluted
share, in the year-ago quarter. Excluding the non-recurring and
non-operational reserve on notes receivable, net income would have
been approximately $2.3 million, excluding any tax effect, an
increase of 35.2% over the prior-year quarter.
Balance Sheet and Capital Structure
Cash at
March 31, 2020, was $10.0 million, compared to $4.2 million at
December 31, 2019.
Total
assets were $49.3 million at March 31, 2020. Total liabilities were
$16.8 million.
2020 Annual Meeting of Stockholders
The
2020 Annual Meeting of Stockholders is scheduled to occur at 2 p.m.
Eastern Time on June 15, 2020 at the company’s corporate
headquarters located at 111 Springhall Drive, Goose Creek, SC
29445. In an effort to promote social distancing, all stockholders
and other constituents will be able to and are encouraged to attend
the 2020 Annual Meeting virtually. Directions for accessing,
participating in and voting at the 2020 Annual Meeting virtually
will be contained in the company’s proxy
materials.
The
company’s stockholders of record as of the close of business
on April 24, 2020 shall be entitled to notice of and to vote at the
2020 Annual Meeting.
Conference Call
HireQuest
will hold a conference call to discuss its financial
results.
Date:
Monday, May 11,
2020
Time:
4:30 p.m. Eastern
time (2:30 p.m. Mountain time)
Toll-free dial-in
number:
1-844-369-8774
International
dial-in
number:
1-862-298-0844
Please
call the conference telephone number 5-10 minutes prior to the
start time. An operator will register your name and
organization.
The
conference call will be broadcast live and available for replay at
https://www.webcaster4.com/Webcast/Page/2359/34619
and via the investor relations section of HireQuest’s website
at www.hirequest.com.
A
replay of the conference call will be available after 1 p.m.
Eastern time on the same day and continuing through May 25,
2020.
Toll-free replay
number:
1-877-481-4010
International
replay
number:
1-919-882-2331
Replay
Passcode:
34619
About HireQuest
HireQuest,
Inc. is a nationwide franchisor that provides on demand labor
solutions primarily in the light industrial and blue-collar
segments of the staffing industry for HireQuest Direct and
HireQuest franchised offices across the United States. Through its
nationwide network of approximately 135 franchisee-owned offices in
30 states and the District of Columbia, the Company provides
employment annually for approximately 67,000 field team members
working for thousands of customers, primarily in the areas of
construction, light industrial, manufacturing, hospitality, and
event services. For more information, visit www.hirequest.com.
Important Cautions Regarding Forward-Looking
Statements
This news release includes, and the company’s officers and
other representatives may sometimes make or provide certain
estimates and other forward-looking statements within the meaning
of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act,
and Section 21E of the Exchange Act, including, among others,
statements with respect to future revenue, franchise sales,
system-wide sales, and the growth thereof; operating results;
anticipated benefits of the merger with Command Center, Inc., or
the conversion to the franchise model; intended office openings;
expectations of the effect on our financial condition of claims and
litigation; strategies for customer retention and growth;
strategies for risk management; and all other statements that are
not purely historical and that may constitute statements of future
expectations. Forward-looking statements can be identified by words
such as: “anticipate,” “intend,”
“plan,” “goal,” “seek,”
“believe,” “project,”
“estimate,” “expect,”
“strategy,” “future,” “likely,”
“may,” “should,” “will,” and
similar references to future periods.
While the company believes these statements are accurate,
forward-looking statements are not historical facts and are
inherently uncertain. They are based only on the company’s
current beliefs, expectations, and assumptions regarding the future
of its business, future plans and strategies, projections,
anticipated events and trends, the economy, and other future
conditions. The company cannot assure you that these expectations
will occur, and its actual results may be significantly different.
Therefore, you should not place undue reliance on these
forward-looking statements. Important factors that may cause actual
results to differ materially from those contemplated in any
forward-looking statements made by the company include the
following: the level of demand and financial performance of the
temporary staffing industry; the financial performance of the
company’s franchisees; changes in customer demand; the
effects of any global pandemic including the impact of the novel
coronavirus disease ("COVID-19"); the extent to which the company
is successful in gaining new long-term relationships with customers
or retaining existing ones, and the level of service failures that
could lead customers to use competitors’ services;
significant investigative or legal proceedings including, without
limitation, those brought about by the existing regulatory
environment or changes in the regulations governing the temporary
staffing industry and those arising from the action or inaction of
the company’s franchisees and temporary employees; strategic
actions, including acquisitions and dispositions and the
company’s success in integrating acquired businesses
including, without limitation, successful integration following the
merger with Command Center, Inc.; disruptions to the
company’s technology network including computer systems and
software; natural events such as severe weather, fires, floods, and
earthquakes, or man-made or other disruptions of the
company’s operating systems; and the factors discussed in the
“Risk Factors” section and elsewhere in the
company’s most recent Annual Report on Form
10-K.
Any forward-looking statement made by the company or its management
in this news release is based only on information currently
available to the company and speaks only as of the date on which it
is made. The company and its management disclaim any obligation to
update or revise any forward-looking statement, whether written or
oral, that may be made from time to time, based on the occurrence
of future events, the receipt of new information, or otherwise,
except as required by law.
Company
Contact:
Investor
Relations Contact:
HireQuest,
Inc.
Hayden
IR
Cory Smith,
CFO
Brett Maas,
Managing Partner
(866)
464-5844
(646)
536-7331
Email:cory.smith@commandonline.com
-- Tables Follow –
HireQuest, Inc.
Consolidated Balance Sheets
|
|
March 31, 2020
|
|
December 31, 2019
|
|
ASSETS
|
(unaudited)
|
|
|
|
Current assets
|
|
|
|
|
Cash
|
$
10,040,828
|
|
$
4,187,450
|
|
Accounts
receivable
|
24,426,333
|
|
28,201,279
|
|
Notes
receivable
|
3,492,043
|
|
3,419,458
|
|
Prepaid
expenses, deposits, and other assets
|
1,142,614
|
|
188,560
|
|
Prepaid
workers' compensation
|
1,353,714
|
|
822,938
|
|
Other
assets
|
163,625
|
|
201,440
|
|
Total
current assets
|
40,619,157
|
|
37,021,125
|
|
Property
and equipment, net
|
2,545,525
|
|
1,900,686
|
|
Notes
receivable, net of current portion
|
6,113,071
|
|
7,990,251
|
|
Total
assets
|
$
49,277,753
|
|
$
46,912,062
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts
payable
|
$
242,972
|
|
$
253,845
|
|
Other
current liabilities
|
2,248,690
|
|
1,893,846
|
|
Accrued
benefits and payroll taxes
|
1,609,918
|
|
1,113,904
|
|
Due to
affiliates
|
27,790
|
|
-
|
|
Due to
franchisees
|
3,319,107
|
|
3,610,596
|
|
Risk
management incentive program liability
|
2,123,117
|
|
1,811,917
|
|
Workers'
compensation claims liability
|
2,521,132
|
|
2,327,869
|
|
Total
current liabilities
|
12,092,726
|
|
11,011,977
|
|
Workers'
compensation claims liability, net of current portion
|
1,642,560
|
|
1,516,633
|
|
Franchisee
deposits
|
2,055,493
|
|
1,412,924
|
|
Deferred
tax liability
|
1,006,961
|
|
1,688,446
|
|
Total
liabilities
|
16,797,740
|
|
15,629,980
|
|
Commitments
and contingencies
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
Preferred stock -
$0.001 par value, 416,666 shares authorized; none
issued
|
-
|
|
-
|
|
Common
stock - $0.001 par value, 30,000,000 shares authorized; 13,536,742
and 13,518,036 shares issued and outstanding,
respectively
|
13,537
|
|
13,518
|
|
Additional paid-in
capital
|
27,907,344
|
|
27,584,610
|
|
Retained
earnings
|
4,559,132
|
|
3,683,954
|
|
Total
stockholders' equity
|
32,480,013
|
|
31,282,082
|
|
Total
liabilities and stockholders' equity
|
$
49,277,753
|
|
$
46,912,062
|
HireQuest, Inc.
Consolidated Statements of Operations
(unaudited)
|
|
Quarter ended
|
||
|
|
March 31, 2020
|
|
March 31, 2019
|
|
Franchise royalties
|
$ 3,705,242
|
|
$ 3,156,135
|
|
Service revenue
|
414,739
|
|
316,115
|
|
Total
revenue
|
4,119,981
|
|
3,472,250
|
|
Selling, general and administrative expenses
|
3,253,372
|
|
1,552,421
|
|
Depreciation and amortization
|
31,814
|
|
14,037
|
|
Income
from operations
|
834,795
|
|
1,905,792
|
|
Other miscellaneous income
|
250,709
|
|
28,389
|
|
Interest and other financing expense
|
(11,289)
|
|
(184,972)
|
|
Net
income before income taxes
|
1,074,215
|
|
1,749,209
|
|
Provision
for income taxes
|
199,037
|
|
51,426
|
|
Income
from continuing operations
|
875,178
|
|
1,697,783
|
|
Income
from discontinued operations, net of tax
|
-
|
|
19,701
|
|
Net
income
|
$
875,178
|
|
$
1,717,484
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
Continuing
operations
|
$ 0.06
|
|
$ 0.17
|
|
Discontinued
operations
|
-
|
|
-
|
|
Total
|
$ 0.06
|
|
$ 0.17
|
|
Diluted earnings per share
|
|
|
|
|
Continuing
operations
|
$ 0.06
|
|
$ 0.17
|
|
Discontinued
operations
|
-
|
|
-
|
|
Total
|
$ 0.06
|
|
$ 0.17
|
HireQuest, Inc.
Supplemental Operating Metrics
1 Management sometimes refers to total sales generated by
its franchisees as “franchise sales.” Management also
sometimes refers to locations that were owned and operated by the
company, not by one of its franchisees, up through the time of
their sale, the last of which closed on September 29, 2019 as
"company-owned offices." Sales at company-owned offices are
reflected net of costs, expenses, and taxes associated with those
sales on the company’s financial statements as “income
from discontinued operations, net of tax.” The sum of
franchise sales and sales of company-owned branches is referred to
as “system-wide sales,” a non-GAAP operating
performance metric. System-wide sales include sales at all offices,
whether owned and operated by the company or by its franchisees.
While the company does not record franchise sales as revenue,
management believes that information on system-wide sales is
important to understanding the company’s financial
performance because those sales are the basis on which the company
calculates and records franchise royalty revenue, are directly
related to interest charged on overdue accounts, which the company
records under service revenue, and are indicative of the financial
health of the franchisee base.
|
|
March 31, 2020
|
|
March 31, 2019
|
|
Franchise sales
|
$ 56,462,605
|
|
$ 47,384,474
|
|
Company-owned sales
|
-
|
|
179,747
|
|
System-wide
sales
|
$ 56,462,605
|
|
$ 47,564,221
|